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The urban wage premium in imperfect labour markets

Author

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  • Oberfichtner, Michael
  • Hirsch, Boris
  • Jahn, Elke J.

Abstract

Using administrative data for West Germany, we investigate whether part of the urban wage premium stems from fierce competition in thick labour markets. We first document fewer search frictions in denser labour markets. We further show that controlling for search frictions lowers the wage premium from a one standard deviation rise in log population density by 1.3 1.4pp in specifications including worker fixed effects. We lastly find less monopsony power in denser markets. Regional differences in monopsony power predict a wage premium of 1.4 1.9%, thereby accounting for the observed drop in the premium when controlling for labour market frictions.

Suggested Citation

  • Oberfichtner, Michael & Hirsch, Boris & Jahn, Elke J., 2015. "The urban wage premium in imperfect labour markets," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113003, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc15:113003
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    JEL classification:

    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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